Retirement bonuses are a topic that often sparks curiosity and, sometimes, confusion. Unlike workplace performance bonuses, which are awarded for exceeding expectations, retirement bonuses—also known as retirement ‘rewards’ or ‘balance boosters’—operate differently. They serve as a form of tax refund within certain super funds. If you’re approaching retirement, understanding how these bonuses work could help maximize your retirement savings.
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What Are Retirement Bonuses?
Retirement bonuses are financial incentives offered by some superannuation funds when members transition from the accumulation phase (saving) to the decumulation phase (spending). These bonuses represent a refund of tax provisions that funds have set aside for potential capital gains tax liabilities. Since retirees no longer have tax liabilities on their decumulation accounts, some funds choose to return a portion of this money as a bonus.
Why Do Some Super Funds Offer Retirement Bonuses?
Not all super funds offer retirement bonuses. According to Joshua Lowen, Insights Manager at SuperRatings, only about 30% of mainstream industry and retail funds provide them. The reason some funds offer these bonuses while others don’t largely come down to competition. Retirement bonuses can be an effective tool for attracting and retaining members, discouraging them from switching to Self-Managed Super Funds (SMSFs) to minimize capital gains tax liabilities.
Additionally, more funds are expected to introduce retirement bonuses shortly as part of their strategy to remain competitive.
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Who Qualifies for a Retirement Bonus?
To receive a retirement bonus, members must move their super balance from the accumulation phase to the decumulation phase. However, the calculation methods used to determine bonus amounts vary by fund. These methods include:
- Individual Calculation: Based on your investments, the duration of your membership, and any changes in investment options.
- Flat Percentage Method: Some funds apply a fixed percentage to the member’s balance, though certain investment options like cash may be excluded.
- Tiered Bonus Structure: Funds may offer different percentage bonuses depending on the member’s investment choices.
When and How Are Retirement Bonuses Paid?
Most super funds automatically calculate and apply the retirement bonus when transitioning a member’s account to the decumulation phase. The bonus is typically credited on the first day of the new decumulation account. However, members should refer to their fund’s Product Disclosure Statement (PDS) for specific details.
How Much Can You Expect to Receive?
Retirement bonuses are usually calculated as a percentage of your super balance. The standard bonus rate is around 0.5% of the balance, though funds often impose a cap. For example, the Australian Retirement Trust has a lifetime bonus cap of $9,500, which is based on 0.5% of the Transfer Balance Cap (TBC) of $1.9 million.
For an average super balance of $203,000 (median for females), a 0.5% bonus would equate to approximately $1,015.
Are There Any Restrictions?
Yes. Super funds impose certain conditions on their retirement bonuses, including:
- Minimum Membership Period: Some funds require members to have been part of the fund for a set duration before qualifying.
- Clawback Period: A fund may require members to remain with the fund for a specified time after receiving the bonus, usually between 6–12 months.
- Withdrawal Limits: Funds may impose restrictions on how much can be withdrawn within a certain timeframe post-bonus.
It’s also worth noting that retirement bonuses do not count as contributions, so contribution caps do not apply. However, they are factored into an individual’s Transfer Balance Cap (TBC).
Should You Switch Funds Just for a Retirement Bonus?
While retirement bonuses can be a nice financial boost, they shouldn’t be the sole reason for switching super funds. Before making a decision, consider:
- Fees and Charges: A fund with a lower retirement bonus but lower fees may be more beneficial in the long run.
- Investment Performance: A well-performing fund can yield better overall returns than one offering a higher bonus.
- Customer Support and Services: Ensure the fund provides adequate support and retirement planning assistance.
For example, if a bonus is 0.5% of a $203,000 super balance ($1,015), switching funds solely for the bonus may not be worthwhile if fees are higher or investment performance is lower.
Final Thoughts: Making an Informed Decision
Retirement bonuses can be a valuable addition to your retirement savings, but they should be viewed as one piece of the broader retirement planning puzzle. Carefully reviewing your super fund’s policies, fees, and overall performance is crucial before making any changes.
If you’re unsure about your eligibility for a retirement bonus, contact your super fund or seek financial advice to ensure you’re making the best decision for your future financial well-being.
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